U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
Commission file number 27859
Rad Source Technologies, Inc.
(Name of Small Business Issuer in its charter)
Florida 65-0882844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
475 Ramblewood Drive, Coral Springs, Florida 33071
(Address of principal executive offices) (Zip Code)
(954) 755-1827
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001
Check whether the issuer (1) filed all reports required to be filed by Sectio 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirments for the past 90 days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for its most recent fiscal year $60,647
The aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price at January 11, 2000 was
$1,018,810
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TABLE OF CONTENTS
Part I
Item 1. Description of Business..............................................3
Item 2. Description of Property..............................................9
Item 3 Legal Proceedings....................................................9
Item 4. Submission of Matters to a Vote of
Security Holders............................................9
Part II
Item 5 Market for Common Equity and Related Stockholder Matters............11
Item 6 Management's Discussion and Analysis or Plan of Operation...........13
Item 7. Financial Statements................................................14
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................15
Part II
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................16
Item 10. Executive Compensation..............................................17
Item 11. Security Ownership of Certain Beneficial Owners and Management......17
Item 12. Certain Relationships and Related Transactions......................17
Item 13. Exhibits and Reports on Form 8-K....................................18
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PART I
References herein to "We," "Us," or the "Company" refer to Rad Source
Technologies, Inc. and their subsidiary.
Item 1. Description of Business
(a) Business Development.
We were incorporated in the State of Florida on July 2, 1990 as Computer
Vending, Inc. On December 24, 1998, we entered into an agreement with Rad
Source, Inc. (hereinafter "Rad Source"), a Florida corporation, and the
holders of 100% of their issued and outstanding shares, whereby we
acquired all of the outstanding shares of Rad Source in exchange for
2,278,266 (Pre-split) or 759,422(Post-split) newly issued shares of our
Company. At the closing of the transaction, the shareholders of Rad Source
obtained control of our Company, and we changed our name to Rad Source
Technologies, Inc. Our then existing directors and executive officers
resigned and were replaced by designees of Rad Source, which became our
wholly owned subsidiary.
Rad Source was incorporated in the State of Florida in October of 1996.
Since incorporation, Rad Source has engaged in the development of our
products described below. On September 9, 1999, we reverse split our stock
on a (3) three for (1) one share basis. All references to our shares
contained in this report reflect the stock split of September 9, 1999,
unless otherwise indicated. We have not been involved in any bankruptcy,
receivership or similar proceeding.
(b) Business of the Company.
The following is a description of our business. References to our business
and operations include both our operations and those of Rad Source, our
wholly owned subsidiary, unless otherwise specifically indicated.
Our machines are based on technology developed and research conducted by
our President and Director, Randol Kirk. Mr. Kirk currently owns the
technology used for our machines. We have a license agreement with Mr.
Kirk, which allows us to sell the two products utilizing this technology.
We have developed two machines designed to replace radioactive sources
with common x-ray, which has been traditionally used in imaging
applications for airport scanners and medical x-rays. Irradiation is the
process of killing organisms in a product by using high doses of gamma or
x-rays to stop the reproduction of such organisms. Our products are
designed to replace regulated, nuclear irradiation devices with x-ray
technology that allow size, efficiency and cost to be optimized for
application in the medical and industrial markets. Our products are
manufactured to be immediately applicable to resolving highly publicized
public health and consumer issues.
X-ray machines are significantly less expensive to manufacture, require
significantly less site cost and do not require disposal of radioactive
waste. The key advantages of an X-ray source are:
(1) There are no disposal problems;
(2) No Nuclear Regulatory Commission licensing or reporting is required;
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(3) There is no risk of radiation when the device is in the off
position;
(4) Service rates of the device are compatible with that of other
electronic equipment; and
(5) operator exposure and safety risk is reduced.
(1) Principal Products and their Markets
We have developed two products to date, both of which are discussed
below.
RS2000
The RS 2000 is used to irradiate human cells, bacteria, and small
animals. The irradiation of these organisms is used in various
aspects of cancer research to determine appropriate levels of cancer
treatment for humans. Subsequent to September 30, 1999 we delivered
one RS 2000 to Precision Therapeutics, Inc. to be used in cancer
research. The manufacturing of our RS 2000 is not subject to FDA
approval, but its applications are covered by FDA and USDA
regulations.
RS3000
The RS 3000 Blood Irradiator was developed to replace existing
radioactive cesium units currently in service and for use in
additional facilities that want alternatives without radioactive
sources on premises. This machine is capable of replacing low dose
gamma irradiation. The RS 3000 Shielded Cabinet X-ray Source is
designed to irradiate blood and blood products packaged in
transfusion bags when irradiation for Graft Versus Host Disease
("GVHD") is necessary. GVHD is a life threatening complication
arising from transfusion recipient's reaction to the white blood
cells acquired in a transfusion from a blood donor. This disease
occurs when the blood or blood product makes antibodies against the
recipient tissues and tries to destroy the recipient tissue as if it
were a disease. The machine can irradiate a single transfusion bag
or its equivalent thereby reducing the risk of GVHD for transfusion
recipients. We received FDA clearance for this product on March 30,
1998.
Orders
Subsequent to September 30, 1999, we delivered another RS 3000 and
one RS 2000 and as of January 11, 2000 have an order for a RS 3000
outstanding. As of January 11, we have collected $9,532 of the
$65,000 total purchase price in payment on the first RS 3000 (terms
of this order consist of 24 monthly payments) order and the $89,000
total purchase price in payment on the second RS 3000 unit order and
$19,000 on the $89,000 purchase price on the third order which has
not yet been delivered to the customer. As of January 11, 1999 we
have received $0 of the $69,000 total purchase price in payment on
the RS 2000 unit. Except as previously noted, all of these units
have been delivered to the purchasers. There can be no assurance
that
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these orders will be fully paid for which could have a material
adverse effect on our business and operations.
We have entered into an agreement with USI, Inc., whereby USI, Inc.
will act as the exclusive distributor of our RS3000 within Maine,
Massachusetts, Vermont, New Hampshire, Delaware, New York, New
Jersey and Rhode Island, provided that they sell 8 of our RS3000
units to third parties each year. Should USI, Inc. fail to sell at
least 8 RS3000 units, the agreement may be immediately terminated at
our option.
There can be no assurance that we will be successful in developing,
delivering and marketing, on a timely and cost effective basis, any
of our products. Moreover, there can be no assurance that we will be
able to successfully develop product enhancements or new products
that respond to technological change, evolving industry standards or
customer requirements. There can be no assurance that we will not
experience difficulties that could delay or prevent the successful
development, introduction or marketing of our products or that our
products will achieve market acceptance.
Marketing
We market our products and services through individual,
non-exclusive distributors and contacts of our President and some of
our directors. Management cannot anticipate the nature or extent of
additional marketing support which may be required to market our
products, as the nature and cost of such marketing will depend, in
part, upon the initial marketplace acceptance of our products. There
is no assurance that we will have sufficient funds available to hire
additional marketing persons, or that, if hired, the efforts of such
persons will be effective in marketing our products.
The current marketing of our products primarily consists of
attending trade shows, advertisement in a professional trade
journal, direct telemarketing to potential users based on review of
health care provider data, and word-of mouth. There can be no
assurance that such marketing activites will be successful.
(2) Distribution Methods.
Distribution of our products will be handled on an individual basis
depending on the needs of the consumer. There can be no assurance
that we will be able to produce and manufacture our products on a
timely basis for each order.
(3) Status of any Publicly Announced New Product.
We currently have no publicly announced new products.
(4) Competitive Business Conditions.
We are subject to competition from a number of companies who have
considerably greater experience, engineering capability, and
financial resources than we have. We compete with numerous companies
involved in irradiation of blood including small and large
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businesses. There are several companies producing radiation sources
that provide the same product functions. Several of these
competitors are substantially better funded by established and
ongoing relationships with many of the companies and organizations
that we will seek as customers. One factor that differentiates our
product from that of our competitors is our departure from a
radioactive source within our products. Most competitors which
produce irradiation devices do so through the utilization of some
form of high-energy source, the presence of which gives rise to
various radiation, safety and cost issues common among our
competition.
The markets in which we operate are characterized by significant
technological change, evolving industry standards and new product
introductions. Our competitors can be expected to continue to
improve the design and performance of their products and to
introduce new products with competitive price and performance
characteristics. There can be no assurance that we will have
sufficient resources to adopt to technological change. If our
products or technologies become uncompetitive or obsolete, it will
have a material adverse effect on our operations.
(5) Sources and Availability of Raw Materials.
We are able to obtain the materials for the manufacturing of our
products from various suppliers, and we do not anticipate any
shortage of raw materials needed for the manufacturing of our
products.
(6) Dependence on Certain Customers.
We do not believe that we are dependent upon any single material
customer.
(7) Intellectual Property.
We have applied for a patent on the RS 3000 Unit (Serial Number
09,383,228). There can be no assurance that patent protection for
the RS 3000 will be granted. Further, there can be no assurance that
if granted the patent for the RS 3000 or other patents applied for
in the future will afford protection from material infringement or
that such patents will not be challenged.
There also can be no assurance that our technology will not infringe
upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that we will be able
to negotiate with the patent holder for a license, in which case we
could be prevented from utilizing the subject matter claimed by such
patent. In addition, there can be no assurance that we will be able
to redesign our products to avoid infringement. Our inability to
utilize the subject matter of patents claimed by others, or to
redesign our products to avoid infringement, could have a material
adverse effect on our business.
Mr. Kirk, our founder and President, developed the technologies used
in our current products. There is currently an exclusive licensing
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agreement between our Company and Mr Kirk. Under the terms of this
agreement, Randol Kirk is to be paid a five percent (5%) royalty
based upon the total net selling price of the licensed technology
and licensed products made, used or sold by the Company. Licensed
technology and products consists of our irradiation devices. This
agreement began on September 15, 1999 and is for a term of ten (10)
years. The agreement is renewable at the option of the Company.
Under the agreement, royalties are to be paid monthly, within ten
(10) days after the end of the month in which they become due. Upon
our default of payment which we fail to cure within thirty (30) days
of notice, Mr. Kirk may terminate the licensing agreement. If the
amount of royalty received by Mr. Kirk is less than $12,000 per
fiscal quarter, including company compensation, the agreement
between the parties will be terminated. As such, the rights to the
licensed technology would revert back to Mr. Kirk. Should this
occur, the operations of the Company could be adversely affected.
For all sales made before December 31, 1999, Mr. Kirk has waived any
royalty which otherwise would have been due him.
As of the date of this annual report, we have no trademarks,
franchises, concessions, or labor contracts.
(8)-(9) Government Approvals and Government Regulation.
Our two units comply with Federal Regulations 21 CFR 1020.40 and the
NCRP Report No. 88, ANSI No. 1975, 1978, and 1979A. These
regulations require that no radiation can escape the cabinet and
that radiation production stops if the door is accidentally opened.
Our services, medical products and manufacturing activities are
subject to extensive and rigorous government regulation, including
the provisions of the Federal Food, Drug and Cosmetic Act.
Commercial distribution in certain foreign countries is also subject
to government regulations. The process of obtaining required
regulatory approvals can be lengthy, expensive and uncertain.
Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be
marketed. The Food and Drug Administration (the "FDA") enforces
regulations prohibiting marketing without compliance with the
pre-market approval provisions of medical devices. A Section 510(k)
application is required in order to market a new or modified medical
device. If specifically required by the FDA, a pre-market approval
may be necessary. The FDA review process typically requires
extensive procedures pertaining to the safety and efficacy of new
products, which may delay or hinder a product's timely entry into
the marketplace.
The FDA also regulates the content of advertising and marketing
materials relating to medical devices. There can be no assurance
that our advertising and marketing materials related to our products
are and will be in compliance with such regulations. We are also
subject to other federal, state, local and foreign laws, regulations
and recommendations relating to safe working conditions, laboratory
and manufacturing practices. Failure to comply with applicable
regulatory requirements can result in, among other things, fines,
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suspensions of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could affect the
timing of, or prevent us from obtaining, future regulatory
approvals. The effect of government regulation may be to delay us
for a considerable period of time or to prevent the marketing and
full commercialization of future products or services that we may
develop and/or to impose costly requirements on us. There can also
be no assurance that additional regulations will not be adopted or
current regulations will not be amended in such a manner as to
materially adversely affect our operations.
Our irradiation products for blood units are used exclusively in the
health care industry, which is highly regulated. The health care
industry in certain markets for our products, including the United
States, has experienced significant pressure to reduce costs, which
has led in some jurisdictions to substantial reorganizations and
consolidations of health care providers or payers. Cost reduction
efforts by our customers may adversely affect the potential markets
for our products and services. It is also possible that legislation
could be adopted in any of these jurisdictions which could increase
such pressures or which could otherwise result in a modification of
the private or public health care system or both or impose
limitations on our ability to market our products in any such
jurisdiction. Any such event or condition could have an adverse
impact on our business, financial condition or results of
operations.
The manufacture and use of irradiation equipment is highly
regulated, and there can be no assurance that we will be able to
comply with existing or future regulations or that the regulatory
environment in which we operate will not change significantly and
thus adversely effect our business and financial condition.
Every state imposes licensing requirements on individual
technicians, other equipment operators and the facilities that
utilize irradiation equipment. We cannot predict with any level of
certainty how these licensing requirements will affect our
operations.
We believe healthcare and food-processing regulations will continue
to change; therefore, we will regularly monitor developments in
healthcare, agricultural and food processing laws. We expect to
modify our operations from time to time as the business and
regulatory environment changes. There can be no assurance that we
will be able to successfully address changes in the regulatory
environment and, as such, our operations could be negatively
impacted.
Any of our products may be subject to recall for unforeseen reasons.
The medical device industry has been characterized by significant
malpractice litigation. As a result, we face a risk of exposure to
product liability, errors and omissions or other claims in the event
that the use of our X-ray equipment, components, accessories or
related services or other future potential products is alleged to
have resulted in a false diagnosis. There can be no assurance that
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we will avoid significant liability. Currently, we have no insurance
coverage in place for such liabilities. Further, our assets are
insufficient to compensate for any such claim. As such, any claim
relating to malpractice litigation or recall could adversely affect
our business.
There also can be no assurance that we will be able to obtain
adequate insurance coverage or that, if obtained, such coverage will
continue to be available at an acceptable cost, if at all.
Consequently, such claims could have a material adverse effect on
our business or our financial condition.
(10) Research and Development.
In our past two fiscal years, we have spent approximately $243,199
on product research and development. We do not anticipate that this
cost will be borne directly by the customers.
(11) Compliance with Environmental Laws.
We are currently not subject to compliance with any environmental
laws, to the best knowledge of our management, and we do not
anticipate any significant costs in maintaining compliance in the
future.
(12) Employees.
We have two total employees. Of these, one is full time and one are
part-time. None of our employees are members of a union. We believe
that our relationship with our employees is favorable.
Item 2. Description of Property
Our headquarters are located at our central office/engineering facilities at 475
Ramblewood Drive, Suite 207, Coral Springs, Florida 33071. The facility is
approximately five hundred (500) square feet of office space. We lease this
space on a month-to-month basis at a rent of $560.00 per month. We believe that
this space is sufficient for our needs at this time.
Item 3. Legal Proceedings
We are not a party to any legal proceeding.
We are currently unaware of any pending legal proceeding or any
proceedingcontemplated by a governmental authority entity or other persons in
which we may be involved.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information.
The Company's Common Stock is traded on the NASDAQ Over the Counter
Bulletin Board ("OTCBB") under the symbol IRAD. There is no active trading
market for the Common Stock. The following bid quotations have been
reported for the period beginning March 16, 1999, the date of our initial
quotation, and ending September 30, 1999:
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Bid Quotation*
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Quarterly Period High Low
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March 16, 1999 - March 31, 1999 $5.125 $4.25
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April 1, 1999 - June 30, 1999 $4.75 $2.25
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July 1, 1999 - September 30, 1999* $3.625 $0.125
--------------------------------------------------------------------------
* Reflects 1:3 reverse split on September 9, 1999.
Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission. Such quotes are not necessarily representative of
actual transactions or of the value of our securities, and are in all
likelihood not based upon any recognized criteria of securities valuation
as used in the investment banking community.
We currently have seven (7) market makers for our common stock. There is
no assurance that an active trading market will develop which will provide
liquidity for our existing shareholders or for persons who may acquire
common stock through the exercise of warrants.
(b) Holders
As of January 10, 2000 there were approximately 74 holders of record of
our 2,410,040 shares of common stock outstanding. Of these 2,410,040
shares, 1,934,316 shares are restricted securities within the meaning of
Rule 144(a)(3) promulgated under the Securities Act of 1933, as amended,
because such shares were issued and sold by the Company in private
transactions not involving a public offering. Certain of the shares of
common stock are held in "street" name and may, therefore, be held by
several beneficial owners. Our transfer agent is Interwest Stock Transfer,
P.O. Box 17136, Salt Lake City, Utah 84117.
No prediction can be made as to the effect, if any, that future sales of
shares of common stock or the availability of common stock for future sale
will have on the market price of the common stock prevailing
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(c) Dividends
We have never declared any dividends since our inception. We have no
restrictions limiting our ability to pay dividends, but we do not
anticipate paying dividends in the near future.
(d) Recent Sale of Unregistered Securities.
Pursuant to the Share Exchange dated December 31, 1998 between Rad Source
andthe Company, we issued 759,422 (Post-split) shares of our common stock.
Of the shares issued in the exchange 69,326 (Post-split) shares were
issued with a restrictive legend relying upon the exemption provided in
section 4(2) of the Securities Act of 1933, as amended ("the Act")
Of the shares issued in the exchange, we issued the following shares in
reliance upon Rule 504 of Regulation D of the Act: (i) 16,667 (Post-split)
shares were issued for legal services rendered to Rad Source in 1998; and
(i) or 8,778 (Post-split) were issued to prior shareholders of Rad Source.
At the closing of this Share Exchange we issued an additional 333,333
(Post-split) shares of our common stock to Capital International Holdings
Inc. and its affiliates in consideration for various services rendered to
Rad Source pursuant to an agreement between Capital International Holdings
Inc. and Rad Source dated October 20, 1998. We relied upon the following
facts in determining that Rule 504 was available: (a) We were not subject
to the reporting requirements of Section 13 or 15 (d) of the Exchange Act;
(b) we were not a development stage Company with no specific business plan
nor a company whose business plan was to merge with an unidentified
private entity; (c) the aggregate offering price did not exceed
$1,000,000.
All references to our shares contained in this registration reflect the
stock split of September 9, 1999, unless otherwise indicated. In March of
1999, we issued 113,333 (Post-split) or 340,000 (Pre-split) shares of our
common stock at a price of $6.00 per share (Post-split) or ($2.00 per
share Pre-split) raising total proceeds of $680,000. We relied upon the
following facts in determining that Rule 504 was available: (a) We were
not subject to the reporting requirements of Section 13 or 15 (d) of the
Exchange Act; (b) we were not a development stage Company nor a company
whose business plan was to merge with an unidentified private entity; (c)
the aggregate offering price did not exceed $1,000,000. A form D was
filed. From the offering proceeds, we paid commissions in the amount of
$102,000 to our placement agent, Capital International Securities, Inc.
and their affiliates.
We issued a total of 1,183,333 restricted shares of our common stock in
September of 1999 in reliance upon Section 4(2) of the Securities Act of
1933. Of these, 50,000 shares were issued for legal services rendered to
the Company, 150,000 shares were issued to Consultants for services
rendered to the Company, 400,000 shares were issued to Randol Kirk, our
President and Director for services rendered to the Company, and 83,333
shares were issued to William Hartman, our Director, for services rendered
to the Company. In addition, 500,000 shares were sold at $0.20 per share,
of which 375,000 were sold to Officers and Directors of the Company as
follows:
William Hartman, Director 125,000
Robert Munson, Director 50,000
Adrian Kesala, Director 125,000
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Richard Adams, Director & Secretary 75,000
In September of 1999 we issued 300,000 options to various consultants of
the Company to purchase shares of our common stock at the price of 0.20
per share. Additionally, we issued 100,000 options to each of our five
officers and Directors (500,000 options total) at an exercise price of
$0.20 per share. The options were granted in reliance upon section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Management's Discussion and Analysis or Plan of Operation
Safe Harbor Statement.
Statements which are not historical facts, including statements about the
Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market and industry
segment growth, demand and acceptance of new and existing products are
forward looking statements that involve risks and uncertainties. These
include, but are not limited to, product demand and market acceptance
risks, the impact of competitive products and pricing, the results of
financing efforts, the effects of economic conditions and trade, legal,
social, and economic risks, such as licensing, and, trade restrictions;
and the results of the Company's business plan. Such forward-looking
statements are subject to risks and uncertainties. Consequently, our
actual results could materially differ from those anticipated in these
forward-looking statements.
Plan of Operation
Management expects that we will enter our operational phase during the
next twelve months with our first product, the RS 3000 Blood Irradiator,
the first of which was delivered in August 1999 and has been used
commercially since then. Our second unit was delivered in October 1999. As
of January 11, 2000, the Company had a backlog of 1 RS 3000. These units
are to be used by medical facilities for blood irradiation. We currently
have two RS 3000's being used by two different customers in the United
States and although there have been no significant technical problems to
date, management cannot provide assurance that none will arise in the
future. We have tested the RS 3000 and had an independent laboratory test
the product, but should any substantial technical difficulties be
discovered, management can make no assurances that we will be able to
remedy such in a manner that guarantees commercial success of the product.
Over the next 12 months, the Company will continue its efforts to market
the RS 3000, manufacture, and deliver it. Additionally, certain foreign
markets, including central Europe, will require additional certification
of the RS 3000 before we will be able to sell in those markets and this is
expected to cost $20,000 - $30,000. The Company does not expect to commit
to this process until additional domestic orders for the RS 3000 are
received.
We have developed another product using the same technology as the RS 3000
Blood Irradiator for use in research laboratories and, subsequent to
September 30, 1999, delivered one unit to date. This product is the RS
2000 Biological Irradiator. This product has not yet been used by
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the customer and is undergoing refinement by the Company at the customer's
facility.
We do not have a long history of either of these units being used
commercially, the potential success of these products is not assured.
Our ability to satisfy infrastructure requirements in order to operate as
a going concern will be dependent on the success of the RS 2000 and RS
3000 over the next twelve months and our ability to raise capital if
product sales and cash collections from such sales are not sufficient.
Management believes we will have to raise capital over the next twelve
months to satisfy our working capital requirements and development costs.
We expect to add employees and incur resultant administrative costs
associated with a more substantial infrastructure in order to support the
production and sale of our existing products and the development of
others. This will necessitate the need for capital. In this regard,
management's plan is to seek both private and institutional funds. In
September and October 1999, our affiliates funded approximately $100,000
for our operations; management may utilize this means of raising capital
again in the near future, if necessary. Collections from deposits on new
orders and outstanding receivables combined with continued cooperation of
the Company's subcontractors are expected to mitigate the need for
substantial additional capital, however no assurances that these
expectations are correct can be made.
Over the next twelve months, we expect to incur approximately $50,000 in
capital expenditures, including test and assembly equipment for our
products as well as office furnishings and equipment. Because management
believes we are entering our operational phase, our number of employees is
expected to increase by approximately three to five people. We utilize
outsourcing for much of our manufacture and assembly, and we will require
sales and administrative assistance.
Item 7. Financial Statements
Index to Consolidated Financial Statements
Page
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Report of Independent Certified Public Accountants 14
Consolidated Balance Sheet 15
Consolidated Statements of Operations 16
Consolidated Statement of Changes in Stockholders' Deficit 17
Consolidated Statements of Cash Flows 18
Notes to Consolidated Financial Statements 20
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rad Source Technologies, Inc. and subsidiary,
formerly Computer Vending, Inc.
We have audited the consolidated balance sheet of Rad Source Technologies, Inc.
and subsidiary, formerly Computer Vending, Inc. (a development stage company) as
of September 30, 1999, and the related consolidated statements of operations,
consolidated changes in stockholders' deficit, and consolidated cash flows for
the years ended September 30, 1999 and 1998, and for the period October 11, 1996
(date of inception) to September 30, 1998, and for the period October 11, 1996
(date of inception) to September 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rad Source
Technologies, Inc. and subsidiary, formerly Computer Vending, Inc., (a
development stage company) as of September 30, 1999, and the results of its
operations and cash flows for the years ended September 30, 1999 and 1998, and
for the period October 11, 1996 (date of inception) to September 30, 1998, and
for the period October 11, 1996 to September 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has been in the development stage
since inception on October 11, 1996, and has suffered losses from operations and
has a net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
January 6, 2000
14
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
Current assets:
Cash $ 28,044
Accounts receivable 29,792
Other receivable 15,000
Inventory 121,303
Prepaid expense 5,700
-----------
Total current assets 199,839
Computer equipment, less accumulated
depreciation of $580 2,888
Long-term receivable 28,087
Security deposit 500
-----------
$ 231,314
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable 10,000
Accounts payable 210,576
Accounts payable - stockholders 87,791
Accrued expenses 52,267
Due to stockholders 31,800
-----------
Total current liabilities 392,434
-----------
Stockholders' deficit
Common stock, par value $.001; 50,000,000 shares authorized;
2,410,040 issued and outstanding 2,410
Additional paid-in capital 4,414,652
Deficit accumulated during development stage (4,578,182)
-----------
Total stockholders' deficit (161,120)
-----------
$ 231,314
===========
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended October 11, 1996 (inception)
September 30, to September 30,
-------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 60,647 $ -- $ 60,647 $ --
Cost of sales 53,150 -- 53,150 --
----------- ----------- ----------- -----------
Gross profit 7,497 -- 7,497 --
----------- ----------- ----------- -----------
Expenses:
Research and development 232,526 10,673 259,888 27,362
Selling, general and administrative 345,014 224,874 632,483 287,469
Issuance of stock for services 3,567,161 -- 3,567,161 --
----------- ----------- ----------- -----------
Total expenses 4,144,701 235,547 4,459,532 314,831
----------- ----------- ----------- -----------
Loss before other income (expense) (4,137,204) (235,547) (4,452,035) (314,831)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 3,655 -- 3,655 --
Other income 738 -- 738 --
Interest expense (14,120) -- (14,120) --
Other expense (99,921) (15,056) (116,420) (16,499)
----------- ----------- ----------- -----------
Other expense (109,648) (15,056) (126,147) (16,499)
----------- ----------- ----------- -----------
Net loss $(4,246,852) $ (250,603) $(4,578,182) $ (331,330)
=========== =========== =========== ===========
Earnings per share - basic $ (3.63) $ (0.33)
=========== ===========
Weighted average shares outstanding: 1,170,196 759,422
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
RAD SOURCE TECHNOLOGIES, INC.
FORMERLY COMPUTER VENDING, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock Additional during
------------------------- paid-in development
Shares Amount capital stage Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 11, 1996 (inception) $ -- $ -- $ -- $ -- $ --
Issue founders shares 759,422 759 116 875
Net loss -- -- -- (80,727) (80,727)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 759,422 759 116 (80,727) (79,852)
Net loss -- -- -- (250,603) (250,603)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 759,422 759 116 (331,330) (330,455)
Acquision of Computer Vending, Inc. 1,800 2 -- -- 2
Sale of common stock 613,333 613 673,396 -- 674,009
Issuance of stock for unsecured advances
net of founders shares contributed to the
Company 2,111 2 54,498 -- 54,500
Issuance of stock for services 1,033,374 1,034 2,312,968 -- 2,314,002
Services paid by stock contributed by
founder -- -- 1,253,160 -- 1,253,160
Compensation for stock options issued -- -- 120,514 -- 120,514
Net loss -- -- -- (4,246,852) (4,246,852)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 2,410,040 $ 2,410 $ 4,414,652 $(4,578,182) $ (161,120)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 11, 1996 (inception)
September 30, to September 30,
-------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow (used) by operating activities:
Net loss $(4,246,852) $ (250,603) $(4,578,182) $ (331,330)
Depreciation 580 -- 580 --
Interest paid by issuing notes -- 6,400 6,400 6,400
Issuance of stock for services 3,567,161 -- 3,567,161 --
Compensation for stock options 120,514 -- 120,514 --
Write-off of obsolete inventory 36,959 -- 36,959 --
Adjustments to reconcile net loss to net cash
used in operating activities:
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable (29,792) -- (29,792) --
Other receivable (15,000) (15,000)
Inventories (121,303) -- (158,262) (36,959)
Other assets (33,787) -- (34,287) (500)
Increase (decrease) in:
Accounts payable 166,952 3,387 210,576 43,624
Accounts payable - stockholders 87,791 -- 87,791 --
Accrued expenses (114,337) 136,429 52,390 166,727
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities (581,114) (104,387) (733,152) (152,038)
----------- ----------- ----------- -----------
Cash flows used by investing activities:
Purchase of property and equipment (3,468) -- (3,468) --
----------- ----------- ----------- -----------
Net cash used by investing activities (3,468) -- (3,468) --
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 11, 1996 (inception)
September 30, to September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows provided from financing activities:
Issuance of common stock 673,777 -- 674,652 875
Loans from stockholders 5,112 -- 10,212 5,100
Proceeds from notes payable 10,000 119,900 171,800 161,800
Payments on notes payable (78,500) (13,500) (92,000) (13,500)
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities 610,389 106,400 764,664 154,275
------------ ------------ ------------ ------------
Net increase (decrease) in cash 25,807 2,013 28,044 2,237
Cash, beginning of period 2,237 224 -- --
------------ ------------ ------------ ------------
Cash, end of period $ 28,044 $ 2,237 $ 28,044 $ 2,237
============ ============ ============ ============
Additional information:
Cash paid for interest $ 2,684 $ 1,100 $ 1,100 $ 1,100
============ ============ ============ ============
Income taxes paid during the year $ -- $ -- $ -- $ --
============ ============ ============ ============
Supplemental schedule of noncash financing activities:
Payment of unsecured advances through issuance of stock $ 54,500 $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATON
Rad Source Technologies, Inc. and subsidiary (the "Company"), was incorporated
in the State of Florida on July 2, 1990, as Computer Vending, Inc. The Company
had no assets, liabilities or operations prior to merging on December 24, 1998
with Rad Source, Inc. ("Rad Source"). Computer Vending, Inc. changed its name to
Rad Source Technologies, Inc. on December 17, 1998. The merger was accounted for
as a reverse acquisition, and accordingly, the financial statements of the
Company are those of Rad Source, Inc., since its inception on October 11, 1996.
The stockholders of Rad Source received 759,422 (or 2,278,267 pre-split) shares
of common stock of the Company in the merger. On September 9, 1999, the Company
reverse split the shares on a three for one basis. All shares and per share
information have retroactively reflected this split.
The primary business of the Company is to develop, patent, manufacture, market
and sell a new irradiation concept for food and commercial irradiation. Revenues
will be generated from the sale of irradiation products and sales will initially
be undertaken throughout the United States.
The Company has been in the development stage since inception and its efforts
through September 30, 1999, have been principally devoted to organizational
activities, raising capital and to the acquisition of patents.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and Rad Source, Inc. All material intercompany accounts
and transactions have been eliminated.
Cash and cash equivalents - The Company considers all unrestricted deposits and
highly liquid investments, readily convertible to known amounts, with an
original maturity of three months or less, to be cash equivalents.
Property and equipment - Property and equipment are stated at cost. Depreciation
is provided over the estimated useful lives of the respective assets using the
straight-line method.
Accounts receivable - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required. If an
amount becomes uncollectable, an expense is charged to operations. Accounts
receivable due after twelve months are carried as long-term receivables.
Inventory - Inventory is valued at the lower of cost or market and consists of
component parts held by a subcontractor.
Advertising costs - Advertising costs are charged to operations as incurred.
Research and development expenses - Research and development expenses are
charged to expenses as incurred.
20
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes - The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and liabilities are
computed for the difference between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period, plus or minus the change during the period in deferred tax assets and
liabilities.
Income (loss) per share - The Company accounts for earnings per share according
to Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 requires presentation of basic and diluted earnings or loss per share. Since
the Company experienced losses no diluted earnings per share are presented.
Earnings or loss per share is computed by dividing net income or loss by the
weighted average number of shares outstanding during the period.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimated.
Fair value of financial instruments - The fair value of the Company's financial
instruments approximate their carrying value.
Impairment of long-lived assets - The Company evaluates the recoverability of
its property and equipment, and other assets in accordance with Statement of
Financial Accounting Standards Board ("FASB") No.121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such intangible assets
relate. No impairments were recognized during the years ended September 30, 1999
and 1998 and the period from October 11, 1996 (inception) through September 30,
1999.
Segment reporting - In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). This statement requires companies to report
information about operating segments in interim and annual financial statements.
It also requires segment disclosures about products and services, geographic
areas and major customers. The Company has determined that it did not have any
separately reportable operating segments as of September 30, 1999 and 1998.
21
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive income - In June 1997, FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. SFAS
130 is effective for financial statements for fiscal years beginning after
December 15, 1997. Its adoption did not impact the Company's financial position,
results of operations, or cash flows as the Company had no items of other
comprehensive income during the years ended September 30, 1999 and 1998.
Recent accounting pronouncements - In June 1998, FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000, with earlier application encouraged. The Company does not currently use
derivative instruments and, therefore, does not expect that the adoption of SFAS
133 will have any impact on its financial position or results of operations.
3. UNCERTAINTY - GOING CONCERN
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining equity and commencing profitable
operations. While pursuing capital, the Company must continue to operate on cash
flow generated from the loans of stockholders, if necessary. The Company
experienced a loss of $4,246,852 and $250,603 during 1999 and 1998,
respectively, and has a net deficiency in equity of $161,120 and a net working
capital deficiency of $192,596 as of September 30, 1999. While much of the 1999
loss resulted from non-cash expenses for the issuance of stock and stock
options, the Company still experienced a net cash deficit from operating
activities of $581,114. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans in regards to this matter are to raise capital and increase
its marketing efforts and increase sales of units in an effort to generate
positive cash flow. The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
22
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE
Notes payable at September 30, 1999 consisted of the following:
September 30,
1999
----
Unsecured demand note payable, bearing interest at 9%,
Guaranteed by the President $ 10,000
Unsecured demand notes payable to a director and
Shareholders, bearing interest at 10% 31,800
--------
$ 41,800
========
During the year ended September 30, 1999, the Company paid its President and
Chief Executive Officer $10,212 for monies advanced since inception.
5. SALE OF SECURITIES
In fiscal 1997, the Company issued to founders of Rad Source 8,750,000 shares of
common stock for $875. On the date of the merger with the Company, the founding
stockholders received 759,422 shares in the Company in exchange for their
initial shares in Rad Source.
On December 24, 1998, Rad Source purchased the Company for $100,000. The
transaction was accounted for as a reverse merger and, therefore, the financial
statements are those of Rad Source since its inception on October 11, 1996.
Because there were no assets, liabilities or operations acquired, the $100,000
paid was charged to other non-operating expense. In connection with this
transaction, 1,800 shares of common stock were retained by the prior
stockholder.
In December 1998 and January 1999, the Company sold, pursuant to a private
placement, 113,333 shares of common stock for $573,777, net of expenses. On
September 16, 1999, the Company sold 500,000 shares of common stock for $100,000
and issued 683,333 shares for services, and an expense of $106,667 was recorded.
During the year ended September 30, 1998, individuals and a corporation advanced
the Company funds to purchase common stock. During fiscal year 1999, the Company
issued 20,667 shares of stock for these advances of which 18,556 shares were
contributed by one of the founders, for a net of 2,111 new shares of common
stock issued for the unsecured advances of $54,500.
During the year ended September 30, 1999, the Company issued 1,016,707 shares of
common stock for consulting services in the amount of $2,214,001 and 16,667
shares for legal services in the amount of $100,000. The charge to expense was
based on the fair market value of the securities issued at the time of issuance.
Also during the year, the founder contributed 198,860 of the original 759,422
shares that were reissued in the share exchange in payment for consulting
services totaling $1,193,160, based on the fair market value of the securities
at the time of issue. In addition, the founder contributed 10,000 shares for
legal fees amounting to $60,000.
23
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS
The following table summarizes information about stock options at September 30,
1999:
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
------------------------- -------------------------
Weighted Weighted
Average Weighted Average Weighted-
Remaining Average Remaining Average
Exercise Contractual Exercise Contractual Exercise
Price Range Shares Life Price Shares Life Price
- ----------- ------- ---- ----- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
$ 0.20 807,000 2.96 $ 0.20 807,000 2.96 $ 0.20
=========== ======= ==== ======== ======= ==== =======
</TABLE>
The following table summarizes activity for the year ended September 30, 1999.
1999
----------------------
Weighted-
Average
Exercise
Shares Price
------ -----
Outstanding on October 1, 1998 -- --
Granted 807,000 $ 0.20
Outstanding on September 30, 807,000 $ 0.20
Exercisable on September 30, 807,000 $ 0.20
Shares available on September 30,
for options that may be granted 807,000 $ 0.20
Weighted average fair value of
options granted $ .17
=======
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation." In
accordance with SFAS No. 123, the Company expensed $120,514 as compensation for
options granted to consultants during the fiscal year ended September 30, 1999.
As permitted by SFAS No. 123, the Company chose to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
for stock options issued to employees. Accordingly, no compensation cost has
been recognized for 100,000 options granted to one employee.
As required by SFAS 123, pro forma disclosures regarding net income and earnings
per share must be determined as if the Company had accounted for its employee
stock options under the fair value
24
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (continued)
method. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1999.
For the year ended
September 30, 1999
------------------
Risk free interest rate 5.67%
Expected lives 3
Expected volatility 1.62
Expected dividend yield --
The Company's pro forma information under SFAS 123 for the year ended September
30, 1999 was as follows:
1999
----
As Pro
reported forma
-------- -----
Net loss $(4,246,852) $(4,263,898)
=========== ===========
Net loss per share - basic $ (3.63) $ (3.65)
=========== ===========
7. INCOME TAXES
The Company had available at September 30, 1999, a net operating loss
carry-forward for federal and state tax purposes of approximately $1,010,000
that could be applied against taxable income in subsequent years through
September 30, 2012 to 2018. The tax effect of the net operating loss is
approximately $380,000, and a full valuation allowance has been recorded, since
realization is uncertain.
8. LEASE COMMITMENTS
The Company entered into a vehicle lease on December 31, 1996 for a term of 39
months at $430 per month. The Company also assumed a lease for office space on
August 16, 1996 for a term of two years at $560 per month. The lease is
currently on a month to month basis. Future minimum lease payments under
noncancelable operating leases are $2,579 for the year ending September 30,
2000.
Rental expense for the vehicle and office leases charged to income for the years
ended September 30, 1999 and 1998 amounted to $11,880 and $ 6,839, respectively.
25
<PAGE>
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY,
FORMERLY COMPUTER VENDING, INC.,
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LICENSE AGREEMENT
The Company has a licensing agreement with its President to pay a license fee of
5% of the net selling price of licensed technologies. The term of the agreement
is for ten (10) years and it expires on September 14, 2009. If the President
does not receive at least $12,000 per quarter in licensing fees and salary, then
all rights based on the agreement are terminated and all rights to the
technologies revert to the President. This agreement cancelled a prior licensing
agreement that provided for a minimum of $48,000 per annum in licensing fees and
salary. As of September 30, 1999, the President waived all rights to any and all
fees not paid under the licensing agreements from inception through that date,
and no fees have been accrued as payable to the President. The Company is
dependent upon these technologies for its product line.
26
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers
The following sets forth the names and ages of our officers and directors.
Our directors are elected annually by the shareholders, and the officers
are appointed annually by the board of directors.
- --------------------------------------------------------------------------------
Name Position Age Term
- --------------------------------------------------------------------------------
Richard Adams Director 53 Annual
- --------------------------------------------------------------------------------
Will Hartman Director 39 Annual
- --------------------------------------------------------------------------------
Adrian Kesala Director 55 Annual
- --------------------------------------------------------------------------------
Randol Kirk CEO, President,
Director 51 Annual
- --------------------------------------------------------------------------------
Robert Munson Secretary & Director 57 Annual
- --------------------------------------------------------------------------------
Richard Adams.
Mr. Adams has served as a Director of the Company since December 24, 1998.
He holds a B.A. from Michigan State University. Mr. Adams has had a long
and distinguished career in management within the healthcare and medical
field, during which, he co-founded Epsilon Medical Corporation with Mr.
Kirk in 1991, as well as aided in the development of the (D.I.A.) Scan
Portable Fluoroscopy Unit.
From 1978 to the present, Mr. Adams was the owner and President of
LifeCare Imaging International, Ltd, a fifteen (15) year old manufacturer
of mobile medical suites.
Will Hartman.
William Hartman, a CPA, has served as a Director of the Company since
March 1999. Mr. Hartman is a CPA and holds Bachelor of Science, Master of
Business Administration and Master of Accounting Degrees from Miami
University in Oxford, Ohio. Mr. Hartman has served in consulting and
executive financial positions and began his career with Price Waterhouse
in 1984. From April 1994 to June 1995, Mr. Hartman served as chief
27
<PAGE>
financial officer of Jansko, Inc., a furniture manufacturing company. From
July 1995 to October 1996, Mr. Hartman served as vice-president of finance
and administration for Turbo Power, Inc., an aircraft engine overhaul
facility. From October 1996 to June 1998, Mr. Hartman served as a
financial advisor to Custom Air Support Holdings, Inc., a holding company
for aviation investments, and from April 1998 to June 1998 served as
President of an affiliated freight airline, Custom Air Transport, Inc.
From August 1998 to May 1999, Mr. Hartman was the senior manager of
corporate reporting for Neff Corp., an industrial equipment leasing
company listed on the NYSE. From June 1999 through October 1999 Mr.
Hartman was employed by ecom ecom.com, Inc., a sports leisure and internet
commerce company, and since then has been a financial consultant to them
and the Company.
Adrian Kesala.
Mr. Kesala has been a director of the Company since December 24, 1998. Mr.
Kesala served as the Senior Staff Radiologist at the
Columbus-Cuneo-Cabrini Medical Center in Chicago, Illinois from 1978 to
1985. He also worked as an Assistant professor of Radiology at
Northwestern University in Chicago, Illinois from 1978 to 1990, as well as
the Director of Radiology at Swedish Covenant Hospital in Chicago,
Illinois from 1985 to 1990. Presently, Mr. Kasala is in the active
practice of radiology at Resurrection Medical Center, Chicago, Illinois,
where he has been since 1991.
Randol Kirk.
Mr. Randol Kirk is the founder of Rad Source and has served as President
of the Company since December 24, 1998. Mr. Kirk received his Bachelor of
Arts from the University of Iowa and a Masters in Business Administration
from DePaul University. Mr. Kirk's professional career as an entrepreneur
in the healthcare and diagnostic imaging field has spanned over twenty
-five (25) years.
Prior to founding Rad Source, Mr. Kirk was the co-founder and President of
Epsilon Medical Corporation, which provided diagnostic evaluations for
stroke patients in skilled nursing facilities. He worked in this capacity
from 1991 to 1995. In 1996 Mr. Kirk founded Rad Source, Inc. Mr. Kirk's
most recent efforts have been directed towards developing and building our
RS 2000 and RS 3000 irradiators.
Robert Munson.
Robert Munson has served as our Director of Marketing since December 24,
1998. Mr. Munson began his career with Medical Supply Company ("MSC") of
Florida in 1965, where he rose to Vice President and eventually partner.
After the sale of MSC, he was the Vice President of Sales and Marketing
for Medical Resources International, which manufactured and distributed
medical gloves, from 1988 to 1991.
(b) Significant Employees.
There are no employees expected to make a significant contribution to the
business that are not mentioned above.
(c) Family Relationships.
28
<PAGE>
There are no family relationships among directors, executive officers, or
persons nominated for such positions.
(d) Involvement in Certain Legal Proceedings.
From April of 1994 to June 1995, Will Hartman our Director, served as
Chief Financial Officer for Jansko Inc. which entered Chapter 7 bankruptcy
May 1, 1996 in the Southern District of Florida.
Other than the aforementioned, during the past five years there have been
no bankruptcies, criminal proceedings, or other legal proceedings, which
would be material to the evaluation of the ability or integrity of any
director, executive officer, or any person, nominated for such positions
in the Company.
Item 10. Executive Compensation
(a) General.
The following tables and notes present, for the two fiscal years ended September
30, 1999, the compensation paid by the Company to the Company's chief executive
officers:
(b) Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Principle Position Compensation Stock Underlying Payouts Compensation
Award(s) Options/SARs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Adams, 1999 5000 0 0 $0 100,000 (1) 0 0
Secretary 1998 0 0 0 $0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Will Hartman, 1999 6250 0 0 $15,583 100,000 (1) 0 0
Director 1998 0 0 0 $0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Adrian Kesala, 1999 0 0 0 $0 100,000 (1) 0 0
Director 1998 0 0 0 $0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Randol Kirk, 1999 20,000 0 0 $74,800 100,000 (1) 0 0
President, CEO 1998 48,000 0 0 $0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Munson, 1999 10,000 0 0 $0 100,000 (1) 0 0
Director 1998 0 0 0 $0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These options are vested and exercisable by the holder until September 30,
2002
(c) Options/SAR Grants Table
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of
Name/Position Underlying % of Total Options Exercise Price Expiration Date
Securities Granted
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard Adams, 100,000 20% $0.20 9/15/02
Secretary
- -----------------------------------------------------------------------------------------------------------
Will Hartman, 100,000 20% $0.20 9/15/02
Director
- -----------------------------------------------------------------------------------------------------------
Adrian Kesala, 100,000 20% $0.20 9/15/02
Director
- -----------------------------------------------------------------------------------------------------------
Randol Kirk, 100,000 20% $0.20 9/15/02
President, CEO
- -----------------------------------------------------------------------------------------------------------
Robert Munson, 100,000 20% $0.20 9/15/02
Director
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth information with respect to the beneficial ownership
of the common stock by (a) each person known by us to be the beneficial owner of
five percent or more of the outstanding common stock, and (b) all executive
officers and directors both individually and as a group, as of October 5, 1999.
Unless otherwise indicated, we believe that the beneficial owner has sole voting
and investment power over such shares.
(a) Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Title Of Class Name and Address of Number of Shares Percentage Ownership
Beneficial Owner Beneficially Owned of Class
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Richard Adams 258,334 10.16%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Will Hartman 318,333 12.52%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- ---------------------------------------------------------------------------------------------------------------
Common Stock Adrian Kesala 277,778 10.92%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- ---------------------------------------------------------------------------------------------------------------
Common Stock Randy Kirk 801,451 31.51%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- ---------------------------------------------------------------------------------------------------------------
Common Stock Robert Munson 235,334 9.25%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Security Ownership of Management
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Title Of Class Name and Address of Number of Shares Percentage Ownership
Beneficial Owner Beneficially Owned of Class
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Richard Adams 258,334 10.16%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- -----------------------------------------------------------------------------------------------------------------
Common Stock Will Will Hartman 318,333 12.52%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- -----------------------------------------------------------------------------------------------------------------
Common Stock Adrian Kesala 277,778 10.92%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- -----------------------------------------------------------------------------------------------------------------
Common Stock Randy Kirk 801,451 31.51%
475 Ramblewood Drive, Ste. 207
Coral Springs, Florida 33071
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Robert Munson
475 Ramblewood Drive, Ste. 207 235,334 9.25%
Coral Springs, Florida 33071
- -----------------------------------------------------------------------------------------------------------------
Total Officers & Directors (5) 1,857,897 64.25%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Change in Control
There are no arrangements, which may result in a change in control of the
Company.
Item 12. Certain Relationships and Related Transactions
On September 15, 1999, we entered into an employment agreement with Mr. Randol
Kirk for him to provide management, product research and development, and other
activities within his field of expertise to the Company. This agreement is for a
term of three years from the date of execution, and provides for a salary of
$120,000 for the first year of employment, $140,000 for the second year of
employment and $150,000 for the third year of employment under the agreement. In
addition, the agreement requires that we give the employee an option to purchase
100,000 shares of our common stock at $0.20 per share and 400,000 share of
restricted common stock.
This agreement is terminable upon mutual agreement of the parties, action by the
Board of Directors in the event of illness or disability or material default or
breach of the agreement.
There is currently an exclusive licensing agreement between us and Mr. Randol
Kirk, our founder and President. Under the terms of this agreement, Randol Kirk
is to be paid a five percent (5%) royalty based upon the total net selling price
of the licensed technology and licensed products made, used or sold by the
Company. Licensed technology and products consists of our irradiation devices.
This agreement began on September 15, 1999 and is for a term of ten (10) years.
The agreement is renewable by the Company. Under the agreement, royalties are to
be paid monthly, within ten (10) days after the end of the month in which they
become due. Upon our default in making any payment not cured within thirty (30)
days of notice, Mr. Kirk may terminate the licensing agreement. If the amount of
royalty received by Mr. Kirk is less than $12,000 per fiscal quarter, including
company compensation, the agreement between the parties will be terminated. As
such, the rights to the licensed technology would revert back to Mr. Kirk.
Should this occur, the operations of the Company could be adversely affected.
Other than the aforementioned, we do not intend to enter into any transactions
with our beneficial owners. We are not a subsidiary of any parent company.
Item 13. Exhibits and Reports on Form 8-K
32
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- --------------------------------------------------------------------------------
2 Share Exchange Agreement (incorporated by reference to
Rad Source Technologies, Inc. Form 10SB, Amendment
1, Exhibit 2 filed November 16, 1999.)
3.1 Articles of Incorporation (incorporated by reference
to Rad Source Technologies, Inc. Form 10SB, Amendment
1, Exhibit 2 filed November 16, 1999.)
3.2 Bylaws (incorporated by reference to Rad Source
Technologies, Inc. Form 10SB, Amendment 1, Exhibit 3.2
filed November 16, 1999.)
4 Specimen Share Certificate (incorporated by reference
to Rad Source Technologies, Inc. Form 10SB, Amendment
1, Exhibit 4 filed November 16, 1999.)
10.1 License Agreement between Randol Kirk and the Company
(incorporated by reference to Rad Source Technologies,
Inc. Form 10SB, Amendment 1, Exhibit 10.1 filed
November 16, 1999.)
10.2 Employment Agreement between Randol Kirk and the
Company (incorporated by reference to Rad Source
Technologies, Inc. Form 10SB, Amendment 1, Exhibit
10.2 filed November 16, 1999.)
10.3 Agreement between Rad Source Technologies Inc., and
Capital International Holdings Inc.incorporated by
reference to Rad Source Technologies, Inc. Form 10SB,
Amendment 1, Exhibit 10.3 filed November 16, 1999.)
10.4 Agreement between Rad Source Technologies Inc. and USI
Inc. (incorporated by reference to Rad Source
Technologies, Inc. Form 10SB, Amendment 1, Exhibit
10.4 filed November 16, 1999.)
21 List of Subsidiaries of Rad Source Technologies Inc.
(incorporated by reference to Rad Source Technologies,
Inc. Form 10SB, Amendment 1, Exhibit 21 filed November
16, 1999.)
23 Consent of Independent Auditors 35
27 Financial Data Schedule
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAD SOURCE TECHNOLOGIES INC.
Dated: January 13, 1999 By: /s/ Randol Kirk
---------------- --------------------------------
Randol Kirk, President and
Principal Financial Officer
34
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Rad Source Technologies, Inc. and subsidiary
formerly Computer Vending, Inc.
We hereby consent to the use in the Form 10K-SB dated January 13, 2000 of our
report dated January 6, 2000 related to the financial statements of Rad Source
Technologies, Inc. and subsidiary, formerly Computer Vending, Inc., for the year
ended September 30, 1999, and for the period October 11, 1996 (inception) to
September 30, 1998, and for the period October 11, 1996 (inception) to September
30, 1999.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
January 10, 2000
35
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 28,044 0
<SECURITIES> 0 0
<RECEIVABLES> 44,792 0
<ALLOWANCES> 0 0
<INVENTORY> 121,303 0
<CURRENT-ASSETS> 199,838 0
<PP&E> 2,888 0
<DEPRECIATION> 580 0
<TOTAL-ASSETS> 231,314 0
<CURRENT-LIABILITIES> 392,434 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,410 0
<OTHER-SE> (163,530) 0
<TOTAL-LIABILITY-AND-EQUITY> 231,314 0
<SALES> 60,647 0
<TOTAL-REVENUES> 65,040 0
<CGS> 53,150 0
<TOTAL-COSTS> 4,144,701 235,547
<OTHER-EXPENSES> 99,922 15,056
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,120 0
<INCOME-PRETAX> (4,246,852) (250,603)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,246,852) (250,603)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,246,852 (250,603)
<EPS-BASIC> (3.63) (0.33)
<EPS-DILUTED> 0 0
</TABLE>
